If you've ever scrolled mindlessly for hours on TikTok or binge-watched a new Netflix series, you probably hadn't paid much attention to the economics of these platforms. For years, local cinemas, broadcasters, and newspapers have paid corporate taxes, licensing fees, and contributed to local economies. Meanwhile, global digital giants often pay minimal taxes in countries where millions of people use their services.
But governments around the world are now beginning to wonder, are online giants are pulling their weight when it comes to tax? This has sparked debate: is it fair competition, or are governments stifling innovation by taxing digital giants?
Key Takeaways:
Levelling the Playing Field – Traditional media contribute local taxes, while digital giants avoid them through loopholes. Taxation aims to redress this imbalance.
Impact on Users – Governments imposing taxes on Netflix and TikTok may result in higher subscription fees or reduced free features from providers, meaning charges reach consumers.
Global vs. Local Tensions – Governments want revenue, but digital giants argue digital services are global, not local.
Innovation vs. Regulation – Taxing could rein in creativity and innovation, but also fund improved competition and public services.
The Future of Digital Economies – Based on the approach taken by governments, it has the potential to transform how we pay for content, who produces it, and if the system will perceive as being fair.
1. Why Must Governments Tax Online Platforms?
Governments require revenues from taxes to fund healthcare, education, transport infrastructure, and other public goods. Already established firms—cinema houses, television broadcasting companies, radio stations—have been part of that framework for decades, paying corporate tax, VAT, and licensing fees.
Digital platforms, however, want profit-shifting arrangements. Those are:
- Netflix: Amasses hundreds of millions of pounds in subscription fees from British citizens, yet the vast majority of the profit ultimately finds its way to low-tax nations such as Ireland or the Netherlands.
- ByteDance (TikTok): Utilises the identical framework to minimise tax payments across the world.
The impact is enormous:
- The EU estimated in 2022 that over €50 billion annually was being denied to member states due to the tax avoidance of multinationals.
- This is money that could have been used on hospitals, schools, or roads.
To the government, though, this isn't about revenue—it's about equity. For example:
- Local television stations and movie theatres may already be financially strained, but they still need to pay their fair share of taxes.
- Meanwhile, global digital giants do not necessarily pay in the same way, balancing the playing field in an unlevelled way.
2. How taxes could affect users
It's easy to say, "Make TikTok and Netflix pay up!", but the reality is that companies rarely fund these charges themselves. Instead, they end up passing these on to consumers.
Netflix, for example, has already raised the price of its subscriptions several times within the last few years, typically under the banner of "added costs" and "investment in content." If governments impose new taxes, it's very likely that monthly fees would go up again. A family paying £10.99 monthly could suddenly be asked to pay £12.99 or more after a new round of taxes is implemented.
For TikTok, the impact might be varied. Since TikTok does not charge users directly, higher taxes might eat into the amount that creators see as TikTok might scale back payments to cover new costs. Ad cost might also rise, which might drive out lower businesses.
Smaller online services are at greatest risk. An international giant such as Netflix can spread the cost of new taxes across millions of consumers. But a niche streaming service or start-up app could be driven out of business if it must pay the same percentage in tax. This could leave consumers with less choice and fewer innovative new services.
Therefore while taxes are intended to create fairness, the unintended effect may be that users and small players are hardest hit.
3. Innovation vs Regulation
This is probably the biggest disagreement in the argument. On the other side, critics warn that over-regulation and taxation can stifle innovation. Think of a small start-up that's trying to compete with Netflix. If they are saddled with the same amount of tax load as a multi-billion-dollar company, they will never get out of the starting gate.
Netflix and TikTok also argue that over-taxed companies reduce their ability to invest in new content and technology. Netflix invests billions of dollars a year into original content and films; TikTok invests dollars on the improvement of its algorithm recommendation and safety features. There is less left over for innovation if there is more going into taxes.
On the other hand, regulation proponents have argued that unfettered innovation comes with a cost. User safety, addictive content, and data privacy concerns have arrayed against TikTok attacks. Regulation and taxation, they argue, are steps to make such companies answerable and contribute to the societies they profit from.
Think about it: in the absence of some kind of regulations, big digital firms can become monopolies—conquering markets, undercutting competition, and evading accountability. Taxation would then protect competition and small businesses, making the digital economy more stable in the long run.
4. Global Tensions: Who gets the money?
Of the most challenging ones, perhaps the toughest question is: who taxes Netflix and TikTok, actually?
They are global companies. Netflix's HQ is in California, TikTok's is in China—but their users are worldwide. If you watch Netflix in London or post a TikTok in Mumbai, where does the tax money get spent?
This has sparked controversy among governments:
- Some argue tax should go according to location where the user is, because that's where the income is generated.
- Others contend it should go to the country where the company is formally headquartered.
To address that, the OECD has called for a global digital tax agreement:
- It would provide for a global corporate minimum tax rate of 15%.
- That would prevent companies from shifting profits to low-tax jurisdictions.
- Over 130 countries signed up in 2021, but implementation has been slow due to conflicts and lobbying by large tech companies.
Meanwhile, countries have moved on their own:
- France introduced a digital services tax in 2019, taxing 3% of earnings by players such as Google, Amazon, and Netflix.
- Other countries, including the UK and India, have followed suit.
Such an approach, however, creates another issue: double taxation
- If Netflix is taxed in multiple countries on the same revenue, costs could skyrocket.
- This creates tensions not just between corporations and governments but between governments as well.
In short: everyone agrees that these corporations must pay more—but no one agrees on how to cut the pie.
5. My opinion
As someone who has been around since TikTok and Netflix appeared, I see both sides. On the one hand, it doesn't look like it's fair that older businesses should bear taxing weights while foreign platforms manage to do it with barely any contribution. Governments require that money for public services.
But also worry about the effect on young creators and consumers. If subscription prices increase or TikTok reduces creator rewards, it could hurt average people more than billion-dollar companies.
My solution is simple: fair taxation:
High enough to get digital platforms to contribute their fair share.
But not so high that it kills tech or hurts consumers.
Ultimately, this is a fight about the future of our digital economy. How we tax Netflix and TikTok today will shape the kind of internet we have tomorrow.
